Acxiom's (ACXM) CEO Scott Howe on Q4 2016 Results - Earnings Call Transcript

| About: Acxiom Corporation (ACXM)

Acxiom Corporation (NASDAQ:ACXM)

Q4 2016 Earnings Conference Call

May 17, 2016 05:00 PM ET

Executives

Lauren Dillard - Senior Director, IR

Scott Howe - President & CEO

Warren Jenson - EVP & CFO

Analysts

Dan Salmon - BMO Capital Markets

Brett Huff - Stephens

Bill Warmington - Wells Fargo

Operator

Good afternoon, ladies and gentlemen and welcome to the Acxiom Fiscal 2016 Fourth Quarter Earnings Call. At this time, all participants are in a listen-only mode. Later, we will conduct the question-and-answer session instructions will be given at that time. As a reminder, this conference call is being recorded.

I would now like to turn the call over to your host, Mrs. Lauren Dillard, Senior Director of Investor Relations.

Lauren Dillard

Thank you, operator. Good afternoon and welcome. Thank you for joining us to discuss our fiscal 2016 fourth quarter and full year results. With me today are Scott Howe, our CEO and Warren Jenson, our CFO. Today’s press release and this call may contain forward-looking statements that are subject to risks and uncertainties that could cause actual results to differ materially. For a detailed description of these risks, please read the Risk Factors section of our public filings and the press release. Acxiom undertakes no obligation to release publicly any revisions to any of our forward-looking statements. A copy of our press release and financial schedules, including any reconciliation to non-GAAP financial measures is available at acxiom.com. Also during the call today, we will be referring to the slide deck posted on our Web site.

At this time, I will turn the call over to Scott Howe.

Scott Howe

Thank you, Lauren. Good afternoon and thank you for joining us. I am excited to report another solid quarter, and I am very pleased with all we have accomplished in the last year. By any measure, fiscal 2016 was a year of tremendous progress and we are a much stronger Company today than we were a year ago. Our divisional structure has allowed each business to move faster and innovate against its unique opportunity set, and at the same time work toward the shared vision of powering the world where all marketing is relevant.

Our mission at Acxiom is to make it safe and easy to activate data anywhere. Marketing has never been so complex, and innovation has produced an explosion of data, channels, devices, and applications. We provide the data foundation marketers’ need to make everything in their stack work together better. We make it safe and easy to activate, validate, enhance and unify data, so that clients can deliver relevant messages at scale and tie everything back to real results.

Each piece of our business executed soundly against this mission in FY16, allowing us to deliver greater results to our clients, while also creating value for our shareholders. In the last year, our Connectivity division has emerged as the clear category leader in data on-boarding and connectivity, and our recent results demonstrate the strong network effect of this business. At the same time, both Marketing Services and Audience Solutions are finding their stride. And the fourth quarter marked the second quarter in a row of top-line growth across the board.

During my portion of the call today, I will update you on each of our businesses and in that discussion share our strategic priorities for FY17. One of our top priorities for the coming year is to secure and scale our leadership in data connectivity. Our current position in the market is fundamentally different than it was a year ago. And during FY16 we felt as if we were the emerging leader in a new category, but a category that wasn't yet widely understood nor universally adopted. Over the last year our strong traction has solidified our position as a central player in the marketing ecosystem.

Specifically in the last year, we doubled our partner ecosystem. Marketers can now on-board and distribute data across a growing network of more than 300 marketing platforms and data providers. We built a better product and continue to make steady progress on match rates. Over this past six months, we've been rolling out a co-op program called Smart Reach. Participants in the program can boost their match rates by contributing authenticated traffic from their own digital properties to a larger shared pool. Although we're still in the early stages of tapping into the scale available through our client base, we're seeing impressive results. Through the Smart Reach program, more than 30 clients are now increasing match rates by as much as 42% relative to the baseline they can achieve through our match network. Our mobile efforts are also generating results, and we now have more than 60 million mobile matches.

We successfully launched Customer Link, enabling marketers to tie together customer data in a privacy safe way using a persistent identifier. This allows marketers to create a unified view of online and offline customer activity that can be used to improve campaign performance. We expanded our data on-boarding service to the UK and France, to meet the rapidly growing demands of clients and partners in those regions. We scaled the organization. LiveRamp ended the year with roughly 180 high caliber employees, up from 100 just a year ago. And Travis May was recently recognized by both Forbes and Ad Age as a leader who is transforming the marketing and advertising industry. We significantly grew our customer base and today on-board data for more than 1,100 companies. And finally we grew revenue over 85% while also delivering meaningful margin improvement. We made remarkable strides in FY16 and recent momentum suggests another year of strong growth.

If you turn to Slide 3, I will update you on our key metrics for Q4. We signed over 50 connectivity deals in the fourth quarter and added more than15 new direct customers. Several of these new deals were Customer Link deals, and today we have over 30 active customers using this service. In total, our direct customer count grew to roughly 285, and as I mentioned if we included indirect customers, whose data we on-board through our reseller partnerships, this number would be in excess of 1,100. We've generated approximately 31 million in revenue during the quarter, up 10% from Q3 and up 62% compared to prior year. We excited Q4 with a revenue run rate of 110 million, up from 100 million at the end of Q3 and up nearly 50% year-over-year. As a reminder this measure represents our quarter ending subscription ARR plus our trailing 12 month royalties on first-party media spend.

We continue to build out our partner ecosystem and added over 40 new integration partners in the quarter, including Fluent, Path Forward and JOBOX. We also expanded existing partnerships with Adobe and PlaceIQ. And just recently announced a new partnership with Digitas, whereby Digitas is leveraging Customer Link to link together data from multiple first and third-party data sources within its IDIOM platform. Many of these partnerships were announced around our Annual RampUp Summit which garnered over 1,600 attendees this year.

During the quarter LiveRamp pipes powered 128 million of total gross media spend, up sequentially and up over 170% compared to prior year. This was a record gross media spend quarter for us. On a trailing 12 month basis, gross media spend was 398 million, up 26% over last quarter. And finally, I would like to highlight some of our recent progress in International. Last month, we launched LiveRamp in the UK and France, and the early response from clients and partners has been very positive.

In the UK, we continue to build out both our match network and partner ecosystem and added several new partners during the quarter. In France, we remain focused on improving match rates and expanding our client base. Recent client wins include AAA and Orange, a leading mobile network in France. And finally across APAC, we are working with over 20 leading publishers and facilitating the sharing of data between some of the regions’ largest brands. In March, we launched a new mobile application, making it even more efficient for our clients to activate their data across the ecosystem.

Our momentum, exiting the quarter, has never been stronger. And going forward, we must aggressively defend and extend our position as a leader in marketing tech connectivity. In the near-term, we remain focused on ensuring we scale in line with adoption and continue to deliver exceptional results to our customers and partners. In the coming year, we will continue to invest in our core recognition privacy and distribution technologies, to both improve existing product functionality and innovate for future growth. We are focused on delivering the higher match rates, faster turnaround times and better, more seamless, user experiences. In addition, we will continue to build out our partner network with the goal of expanding into emerging channels and new used cases.

And finally, we will be investing in new markets. This means both ensuring a successful rollout of our connectivity solutions internationally, and identifying and pursuing new customer segments, like agencies and emerging data orders. A second priority in the coming year will be to accelerate the transformation of Audience Solutions from a data manufacturing business into a data-as-a-service business. A year ago, Rick Erwin joined this call to share his strategy for reinvigorating this business into a more modern, relevant and efficient DAS offering. He outlined several initiatives for accelerating growth and improving overall performance. These initiatives included, building out a very skilled specialist data sales team to supplement our journalist marketing services sales force, expanding distribution to capture demand from areas of the market where we hadn’t previously focused, and tightening our procurement and delivery approach to drive operational efficiencies. While we still have much work to be done to accelerate our data growth and modernize our solutions, recent progress suggests our investments over the past year are paying-off.

Q4 was the second quarter in a row of year-over-year growth. And in the U.S., revenue was up 6%. Our specialist data salesforce continues to drive results. We closed over 100 deals in the quarter, including a large multiyear renewal with Physicians Mutual Insurance Company and new deals with 24 Hour Fitness and a nationwide pet supplies retailer. We generated 30 million in new bookings in Q4, and on a trailing 12 month basis new bookings are up 36% over the comparable period. We remain focused on expanding distribution to digital channels and added 30 new data services partners in Q4, including Pointlogic and xAD.

During the quarter, we also announced the expanded partnership with Twitter, whereby Twitter is leveraging our recognition assets to help its clients measure the offline sales impact of their campaigns. Today, our data is available to support targeted advertising at over 100 online and mobile publishers, television operators, and ad-tech platforms a year ago this number was less than 40. Finally from a product standpoint, we have made significant progress over the last several quarters to improve our core AbiliTec capabilities. We launched Household Link late last year, and are currently working on extending our AbiliTec functionality to more digital touch-points, so that we can help enable online used cases for mobile applications, Web site personalization, and others.

To summarize, our Audience Solutions business made great progress in FY16, and we laid a lot of the necessary groundwork for future growth. We strongly believe this business can be a second growth engine for Acxiom, and are focused on extending our recent momentum into the coming year. Looking ahead, we will continue to invest in expanding and modernizing our distribution capabilities, while also increasing the breadth and functionality of our data and recognition offerings.

A third priority will be to help our clients enable their marketing strategies and capabilities. Across our marketing services business, we are laser focused on helping our clients generate greater results from the data and technology that comprises their marketing stacks. This commitment to our clients is also driving results, and I am pleased to report another solid quarter for Marketing Services which grew 3% in total and 4% in the U.S. We also signed several key deals during the quarter including a number of multiyear database renewals and up-sell agreements, and a new logo win with the global asset management firm that included components from each of our businesses.

In addition just last week we announced the Acxiom Marketing Analytics Environment a fully managed service that integrates online and offline data from disparate sources using the people-based recognition capabilities of AbiliTec and Customer Link. We have described this offering in the past, as a giant data playground hosted in a Hadoop environment that allows marketers to tie together customer data in a privacy safe way to create a single view of the customer. A unified view of customer activity enables clients to perform more accurate measurement and analytics and better understand and manage the customer journey. This is a complementary offering to our marketing database solution, and today 10 clients across several industries, including financial services, retail and media are using the Marketing Analytics Environment to power their measurement and marketing optimization. This is a great example of our ability to deliver new and innovative products to our clients. During the quarter, we were also awarded the prestigious innovation partner award by Citi and we're among six companies recognized at this year's Citi Supplier Awards event for our high level of service and performance.

In the coming year, we will continue to drive innovation across our Marketing Services portfolio and deliver the foundations our clients need to enable their next-gen marketing strategies. We will also continue to invest in our data center virtualization initiative to drive operational efficiencies and improve the way we deliver our products. And finally, as we have in the past we will continue to focus on running a better business and fostering a purpose driven high-performance workplace. With the implementation of our divisional structure and investment in our next-gen data centers and infrastructure, we made a lot of progress against this imperative in FY16. At the same time, we are maniacally focused on constant improvement and continue to find opportunities to run better businesses in every part of our portfolio.

With that, let me conclude the same way I began, and express my excitement over the progress we're making. We're entering FY17 from a position of strength and I remain very optimistic about our future. Thank you again for joining us today. I look forward to updating you on our continued progress in coming quarters.

I will now turn the call over to Warren.

Warren Jenson

Thanks, Scott and afternoon everyone. In my portion of the call today, I'd like to first run through the quarter, then talk about each of our segments and finally provide guidance for FY17.

A few highlights from the quarter overall Q4 was a great finish to the year and the single strongest quarter Acxiom has reported in a long-long time. Total revenue was up 9% and excluding the impact of FX and items, revenue was up 10%. For the second quarter in a row each of our divisions posted top-line growth. In the U.S., total revenue increased to 11% representing the seventh sequential quarter of positive growth. Excluding items international revenue was up 5%. Revenue in Europe excluding items increased 21%. Our adjusted gross margin improved by over 500 basis points to 47% driven by improvements in Connectivity and Audience Solutions. Connectivity had another impressive quarter. Revenue was up 62% and our revenue run rate exiting the quarter grew to over 110 million. Connectivity gross margin improved to 63% and operating income was nearly breakeven again this quarter. Finally, we were EBITDA positive in Q4 and for the year.

In addition last month, we successfully launched LiveRamp in the UK and France to meet the growing demands from customers and partners in those geographies. Marketing Service revenue for the quarter was up 3% in total and 4% in the U.S. And Audience Solutions revenue was up 4% in total and 6% in the U.S. And finally during the quarter, we repurchased $15 million of stock, since inception of our repurchase program we have acquired 15.5 million shares for total consideration of 255 million. Taken together, we are moving forward and making progress against our stated priorities, doubling down on connectivity and seizing the opportunity, returning our core business to growth and improving profitability and at the same time returning capital to our shareholders.

Now let me discuss our fourth quarter results in more detail, starting with Slide 4, our summary financial results. First our GAAP results, revenue as reported was up 9%, gross profit was 101 million, up 29% and gross margin improved by over 700 basis points to 45%. OpEx for the quarter was 109 million, up 22% driven mostly by investments in sales and marketing, and an increase in incentive compensation. GAAP loss per share was $0.02 versus a loss per share of $0.12 in the prior year period.

Next our adjusted results, excluding items, revenue increased 10%. Adjusted gross profit was 106 million as compared to 86 million, and our gross margin improved over 500 basis points to 47.3%. This increase was driven by growth in Connectivity and the combination of growth and cost reductions in Audience Solutions. Excluding items operating income was 20 million, down 7% year-over-year and earnings per share were $0.18 as compared to $0.17 a year ago.

In Q4 our non-GAAP tax rate was 24% driven by stronger international performance and certain structural changes made internationally. For the year, our non-GAAP tax rate excluding one-time benefits was 38.5%. Excluded items in the quarter totalled 28 million, including stock-based comp of 8 million, intangible asset amortization of 4 million, goodwill impairment of 6 million, separation and transformation related third-party expenses of roughly 5 million, and lastly restructuring charges of approximately 5 million.

During the quarter, we made the decision to focus our efforts in Australia, exclusively on our Connectivity business. As a result, we've begun winding down our Australian marketing services in Audience Solutions businesses. In the quarter, we incurred approximately 7 million of impairment and other restructuring charges. The wind down process is expected to be complete by the end of fiscal '17.

Slide 5 highlights our revenue results as reported and Slide 6 adjusts for our EU restructuring. In the U.S., total revenue was 205 million up 11% driven by growth across all segments. Connectivity was up 69% year-over-year and Marketing Services and Audience Solutions were up 4% and 6% respectively. International revenue as reported was down 4%, however revenue adjusted for items was up 5%. Strong results in Europe and in particular the UK were offset by economic weakness in China.

Before turning to our segment results please turn to Slide 7. Our intention moving forward is to add segment level EBITDA to our performance measures. This is part of our effort to provide additional transparency into our business performance. Consistent with our segment disclosures we're not allocating corporate costs to the divisions. This chart highlights our trended EBITDA performance.

Now turning to Slide 8, our segment results, first Marketing Services, total revenue was up 3% year-over-year and revenue in the U.S. was up 4%. Revenue associated with our core Marketing Database business and Consulting were up approximately 8%. However this performance was muted by significant declines in Acxiom Impact. Globally gross margin improved to 35.4% driven primarily by revenue growth. Segment income improved by 7% to 19 million and segment margin improved to 17%. EBITDA was 27 million up 1 million year-over-year despite the headwinds from Impact. For the year EBITDA was 106 million down 5 million.

Slide 9, Audience Solutions, first we're beginning to see the power and value of this high margin business. Let me highlight a few facts, this is the second quarter of growth for Audience Solutions, and this is not accidental, it's being driven by focused execution. This is an attractive high margin business, gross margins north of 55% on the way to 60% to 65%. We have a big digital runway. For Audience Solutions alone revenue from the use of our data in the digital ecosystem were up over 250% in the quarter, and up over 150% for the year. For the quarter revenue was up 4% year-over-year and revenue in the U.S. was up 6%. Gross margin improved over 300 basis points to 58% driven by the combination of higher digital data revenue and operational cost savings. Segment income was 30 million, roughly flat compared to prior year, despite significant investments in sales and marketing. Our segment margin was 37% for the quarter and 37% for the year. Net, our investments are already paying out. EBITDA was 35 million down slightly year-over-year. For the year EBITDA was up 131 million and our EBITDA margin was 44%.

Slide 10, Connectivity, as I mentioned earlier Connectivity had another strong quarter. Revenue was up 62% and we exited the quarter with the revenue run rate in access of 110 million. Gross margin increased to 62.9% and segment loss improved by 6 million to roughly breakeven. EBITDA for the quarter was a positive 2 million. For the year segment loss improved by more than 36 million to a slight loss of roughly 3 million. EBITDA also improved by 36 million to a positive 4 million. Please keep in mind that this performance included significant investments in our match network, new products and international expansion.

Please turn to Slide 11, this business is scaling beautifully, first, our revenue progression. On the left this chart compares our revenue growth to the best in class SaaS companies. On the right, our last three years of EBIT performance, we are also pleased that the segment was EBITDA positive for the year.

Turning to Slide 8, for the quarter operating cash flow was 43 million up 47% from 29 million a year ago. This increase was largely driven by earnings and working capital improvements in the current period. Free cash flow to equity improved for the same reason. CapEx for the quarter was 19 million roughly flat compared to the prior year.

Before guidance, let me spend a minute on international. During the past six months, we performed a careful of evaluation of each of our International businesses. Based on that evaluation we made the decision to exit Brazil and this past quarter we made the call to focus our efforts in Australia, solely on Connectivity. While things could always change, we feel the restructuring is now largely behind us. And Europe seems to be turning a corner. Finally, we are excited about the LiveRamp launch in both the UK and France.

Now, on the guidance, as we look ahead into FY17, we thought it would be helpful to outline both the positives and the challenges we face in our transformation journey. First the positives, Connectivity, we expect to see continued growth in our subscription-related revenue. In fact, we expect subscription revenue to increase by more than 60% next year.

New products, we are very pleased with the adoption of Customer Link, Partner Link and also Smart Reach, the same holds true for the recently announced Marketing Analytics Environment. Audience Solutions, our momentum and strength of execution is building and our high margin digital revenue is expanding rapidly. Inside of our Marketing Services segment, our Marketing Database and Consulting business are stable and growing. Please keep in mind that these two product lines represent 85% of total segment revenues. International, again while early we have taken necessary steps to eliminate subscale operations and believe we are approaching a point of stability. We are also investing in global connectivity.

Next our challenges, Acxiom Impact, we expect this business to be down materially next year and more than offset expected positive growth in Marketing Database and Consulting. First-party GMS transition, we expect that overtime our royalties from first-party GMS will convert to other forms of monetization. As a result, our overall growth rate in Connectivity will not be as high as our underlying growth in subscription revenue. And finally, the inherent risks in a global rollout of a new business.

With that please turn to Slide 13. This chart highlights our adjusted baseline for FY16. You will see we have adjusted for two items, on the top-line we have excluded the FY16 revenue associated with our Brazil and Australia businesses, and on the bottom-line we excluded onetime tax benefits totaling $0.04. As a reminder, our guidance excludes unusual items, including stock-based compensation, onetime expenditures and acquired intangible asset amortization. As compared to our adjusted baseline, we expect total revenue in the range of 870 million to 890 million, up between 4% and 6% versus FY16. Non-GAAP EPS to be flat to slightly up, compared to our adjusted baseline. Please keep in mind that our FY17 EPS estimates include more than 20 million in incremental growth investments in Connectivity alone. In Q1, we expect that EPS will be approximately 15% of our full year guidance.

Finally a few other comments on FY17, if you will turn to Slide 14, while things could easily change as a percentage of the total, we see our revenue phasing per quarter as follows, Q1 roughly 23%, Q2 24%, Q3 27%, and finally in Q4 roughly 26%. We expect Connectivity growth to be approximately 50%. As I mentioned earlier, we expect subscription revenue to increase more than 60%, but our overall growth rate to be tempered by declines in first-party GMS royalties. We expect Audience Solutions to be up next year driven by strong execution and increases in digital data revenue.

And finally, we expect Marketing Service revenue to be down, driven entirely by declines in Impact. We expect CapEx for the year to be approximately 65 million or flat compared to FY16. As a tax rate, we recommend you use between 39% and 40%. We expect our share count to be approximately 79 million to 80 million. And finally, we expect onetime expenditures to drop considerably this year and to be between 5 million and 10 million. These expenses are primarily tied to our next-generation data center initiatives. As a reminder in addition to one-time expenditures, we will incur restructuring charges as we continue to look for efficiencies across our cost base.

With that, let me summarize with two thoughts. First, this was a solid quarter, and second while we absolutely had challenges to manage we feel the wind is now at our back. We enter FY17 committed to four clear priorities, double down in Connectivity in order to drive sustained high growth and global leadership in key markets. Next, create value through performance improvements in both Marketing Services and Audience Solutions, returning to a steady cadence of improvement in these segments remains a top priority. We will carefully manage our cash and maintain financial flexibility. And finally, do as we have done for the last four years steadily return capital to our shareholders.

Thank you again for joining us today. On behalf of my colleagues, we look forward to updating you throughout fiscal 2017. Operator, we will now open the call to questions.

Question-and-Answer Session

Operator

Thank you, sir. [Operator Instructions] Our first question comes from the line of Dan Salmon of BMO Capital Markets. Your question please.

Dan Salmon

I think, Warren, if we could just dive a little back into the guidance, I think probably where the components are coming in differently than most models out there is largely around Impact. And I know it's not a super material part of the business, but it does seem to be having a material impact on Marketing Services guidance and overall. You're obviously not alone after having seen Epsilon put up a relatively weak quarter and it’s more agency services as well, so I was curious if you could shed a little light either you or Scott on what's going on around there. Is it something that is specific to Impact, is it maybe perhaps that the holding company is data driven type of agency services are proving and we're seeing a shift over to that type of business there? And then maybe I'll just start there have one follow-up after this.

Scott Howe

Yes so Dan, this is Scott. And I think you're right to put things in perspective, I mean this represents roughly 8% or so of our overall revenue. The challenge of course is that it somewhat masked a lot of the great stuff that's happening all around it in Marketing Services, it’s a drag I expect better from them. And they have a very strong reputation for client service in the industry and they have ranked number one in some ratings on client service, but what happened in recent months is that in this business relative to say like Marketing Database switching costs are lower. And so they have experienced churn and the team simply hasn’t won new business to offset that. So now what we do about it? Well, number one, we're evaluating our path forward here and that starts with we have to a better job of evangelizing what's unique about us, service, client results that is do a better job of ensuring that prospects understand the synergies of email with the rest of our portfolio and the fact that we can really drive data driven targeting and do some interesting cross channel things. And then we have to explore how we can better land new clients, so we know we're facing some headwinds there, but we also feel like we understand what's driving the problem and now need to set up about fixing it.

Dan Salmon

Okay so it sounds like more you're playing to simply reinvigorating the new business pipeline and processes rather than something secular there, is that fair Scott?

Scott Howe

Yes, I am not seeing secular, I will say that, and this anecdotal, we feel like we've gotten to kind of the final two or three or far more RFPs in the last year than say in the proceeding several years, but for whatever reason we're just not crossing the finish line first.

Dan Salmon

And then just one quick follow-up for Warren is there any share buyback assumed in the EPS guidance?

Warren Jenson

Our all assumptions are included, yes, Dan. So, in the share count for example that contemplates our buyback.

Operator

Thank you. Our next question comes from Brett Huff of Stephens. Your question please.

Brett Huff

We're trying to assess out a little bit on the REV guidance, you mentioned that you got some revenue shifting going on at GMS and things like that, but I think there's a question maybe of conservatism to you, so given that your fiscal '16 REV guidance, you beat it by 20 million-25 million bucks in $0.08 on the bottom-line, ex the tax benefit. How much of this is conservatism and how much is it specifically maybe the Marketing Services decline, can you box those for us, so we understand what the outlook is?

Warren Jenson

Brett here's what I would say is, one, our guidance is what it is and what we try to do is to play it call it between the 40 yard line, is it's just is what it is and you should assume that it's right down in the middle of the field. We have taken into account in our guidance the declines expected from Acxiom Impact and as a result we thought it was important to note that as Scott mentioned the positive performance in Marketing Services is going to be offset by declines in Impact next year, so we do expect revenues in Marketing Services to be down as a result. And if I could just put a fine point on that and it's the point that was made in the formal part of my remarks, the Marketing Database and Consulting business is 85% of the revenue in this business. In the last three quarters this business excluding Impact has grown, in the fourth quarter it grew by 8%. So, we feel very positive, it's not that we're done yet by any stretch in Marketing Services, we feel very positive about that core element of our business. But obviously Impact is having negative effect on our comps year-over-year.

Brett Huff

And then just my follow-up is, just relative to the street, the $0.55 guide in the bottom-line versus the $0.60 street expectation is about $0.10 obviously and that seems to imply about 12 million in cost. I think you called out 20 million of cost just specifically on Connectivity, ex that incremental cost is there anything else that we need to know about, investments that we haven't talked about yet, that are really inhibiting the margin profile, that I think we and the street expected?

Warren Jenson

No, the only thing that I would call out in addition to that is, there is a negative effect from Impact that we've got to wrestle with inside Marketing Services and that impact takes place not only on the top-line but also on the bottom-line to some extent. And as Scott said we're all over fixing that. The second element of color I would add is that we very carefully looked at the investments in Connectivity and in LiveRamp, because obviously if we weren't investing that money you could post a much higher number on the bottom-line, but when we took a look at our growth opportunities and our long-term aspirations, we felt the investments in the match pool were important that Scott highlighted we're now over 60 million mobile matches. We felt that it was the time to capitalize on really the data driven marketing movement that is taking place in Europe, so we're launching in France and the UK and building our match pools there which is costly and a continued investment in our operational sales and product capabilities. So, very carefully thought through and for long-term value we thought absolutely the right thing to do.

Brett Huff

And my last question just a commentary on I think in -- Scott you talked about this I think a little bit already, maybe Warren you did as well, but on the Connectivity business, the 60% growth in the subscription transaction revenue sounds great. How quickly will this transition happen, so that now we can maybe get the -- is this GMS sort of grow over, is it a -- do we kind of get through it this year and then we can look out for a little bit cleaner number in the future, so how do you guys see this kind of phasing?

Scott Howe

We'll have to see Brett, I would tell you it should mostly happen this year, but I can't guarantee it'll be 100% of the way through, but we'll -- what we will do as we tried to on this call, we'll try to really keep everybody focused on the underlying drivers of growth and that inherently is going to be subscription revenue in Connectivity. Keep in mind just to try to help everybody quantify that, of the $400 million GMS number on the trailing 12 months about 30% of that is associated with first-party GMS. So -- and then you can make your assumptions around royalty rates and that's the number that we think will slowly come down.

Operator

Thank you. [Operator Instructions] Our next question comes from Bill Warmington of Wells Fargo. Your line is open.

Bill Warmington

So, I wanted to ask about the GMS conversion, when you're moving that to subscription basis typically how long are the contracts, are they one year or multiyear?

Scott Howe

Bill I would look at it differently. I wouldn’t look at this as now we’re signing a new subscription agreement, I would look at it as we have an arrangement in place with a big advertiser for on-boarding and every year the way we’re thinking about things, we want to make the feature set and the capabilities and what we offer just more valuable, enhance it to just create a much more robust environment, which is very typical of how any growth company would work is you just want the feature set to become that much more valuable to our client. So, I would look at it more as a emerging of subscription opportunities into our core underlying growth rate.

Bill Warmington

Is it less seasonal?

Scott Howe

It should be to some degree less seasonal depending upon what’s going on. We obviously had a pretty doggone impressive Q4 having had sequential growth coming off Q3, excuse me off the holiday quarter, if you will. I think we’re clearly benefiting a little bit from pretty crazy political season too. So that impact shouldn’t go unnoticed. But yes it should be some degree less seasonal.

Bill Warmington

Then on the digital impact, how long before you turn the corner there with that business? When do cycle again? When does it stop going down? When do we cycle against that?

Scott Howe

Hard to say I mean, it could be as much as a year Bill but could be earlier. But it's all dependent on how quickly the team can get new client wins. So, growth fixes all problems. And what you’re seeing here is churn without the corresponding new client wins. So, this is within the teams purview to fix, they just got to, instead of being one of the finalists, be the only finalist.

Warren Jenson

Hi Bill, just to be clear, in our estimates that we’ve shared with you, we are anticipating declines in each quarter of FY17 for Digital Impact and again I am speaking of the Digit Impacts slice.

Bill Warmington

Well you gave some phasing for the revenue that was helpful and gave the first quarter for EPS. I was just going to ask if you wanted to give any additional color in terms of how we spread the EPS out for the rest of the year?

Warren Jenson

No, I don’t think so. I think you all have our history and our tendency is we really don’t want to give quarterly guidance, but we also want to be helpful in the near-term as we can be.

Operator

Thank you. And at this time, I’d like to turn the call back over to our CFO, Warren Jenson, for closing remarks, sir?

Warren Jenson

Terrific, well, thank you everyone for joining us. This was a great quarter and as I mentioned right at the outset, probably the strongest that Acxiom has had in a long-long time. I’d like to just leave you today with three thoughts that we would ask you to take away from this call. First, we feel internally at Acxiom but I think you see it in these results that our momentum is building. The second thing is while we have challenges and we’ve talked about some of those challenges on the call today, we firmly believe that the wind is at our back. And then finally, Connectivity remains strong, Audience Solutions is on the upswing and our Marketing Database business is stable. Thank you very much for joining us. It was great having you and we look forward to your follow-up calls. Thanks everyone.

Operator

Thank you, sir. Ladies and gentlemen, that does conclude your program. You may disconnect your lines at this time. Have a great day.

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